BY CEES HARMON, OLUSHOLA BELLO, BUKOLA IDOWU |
As COVID-19 pandemic continues to take its toll on the economies of the world, more Nigerians have swooped on cryptocurrency market with full expectations in 2021 of higher yields on their investments, despite concerns about its excessive volatility.
LEADERSHIP Sunday gathered that Nigerians, especially young people, found investment in cryptocurrency an escape from poverty and care less about potential risks of getting their fingers burnt in case of bubble.
About three months after the Central Bank of Nigeria (CBN) restricted Nigeria’s financial institutions from dealing with anything crypto-related, recent data suggest that Nigerians have increasingly found other alternatives to access the world’s flagship crypto.
Data retrieved from Usefultulips (a Bitcoin analytic data provider) show that the usage of Bitcoin’s peer-to-peer trading in Nigeria surged by 27% since the CBN directive took effect on February 5, as Nigerians moved about $103 million worth of Bitcoins on just Paxful and LocalBitcoins channels alone.
Although, there had been several warnings by the CBN and the Securities and Exchange Commission (SEC), more Nigerians had put in their funds in the cryptocurrency market, which seems to have yielded more returns in 2021.
For those who invested their funds in the cryptocurrency market, no matter the type of coin they put their funds into, they mostly have either doubled or tripled their investments. This is considering that Bitcoin, the most popular cryptocurrency and the one with the highest market capitalisation – which was $28,768 or N11.76 million per coin at the beginning of the year – is now worth more than N22.79 million.
This means that investing in Bitcoin at the beginning of the year would have earned a 93.8 per cent yield. This is same for investments in Ethereum whose price had soared by over 270 per cent while investments in Bitcoin Cash and Dodgecoin had returned 146.5 per cent and 6,552 per cent increase in value.
LEADERSHIP Sunday gathered that aside the cryptocurrency market, Nigerian retail investors had also put their investments in the fixed income market. For high net worth investors, the bond market and Treasury Bills remain an option as yields on the federal government bond has been between nine and 15 per cent while returns on Treasury Bills are around two to six per cent without adjusting for inflation. Retail investors are, however, looking more into the dollar-denominated mutual funds which offer a return of about 7.5 per cent.
Economists told LEADERSHIP Sunday that rising inflation, with rates now at 18.17 per cent, has dragged down investors’ gains in equities and fixed income instruments in the first quarter of the year, paving the way for investors to look for alternative means of investments.
The inflation rate, it was learnt, affected the valuation of investment instruments, thereby dragging down the rate of returns in the first quarter of 2021. Generally, the investment climate has been poor as most investors got little or no returns on their investments. In the process, it dragged down the profits gained, especially in the equity market last year.
Hitherto, government treasury bills, certificates and bonds had been vehicles of choice for investors considering their nature of certainty and relatively high yield. However, LEADERSHIP Sunday’s investigation shows that investors are generally avoiding such securities because rates of interest on them are much lower. Coupled with that development, an 18 per cent year-on-year (YOY) inflation would naturally erode any expected yield on investment, most likely a loss.
Head of research at Afrinvest West Africa Ltd, Robert Olatunde, noted that for retail investors, last year was a very good year to have invested in bonds, but not so much this year.
Moreover, according to experts, fixed deposits with commercial banks have become unattractive owing to poor or negative return for the same reasons above.
Speaking on the issue with LEADERSHIP Sunday, businessman, economist and a former presidential candidate, Tope Fasua said: “COVID 19 has caused people to social distance and rely more on digital devices. There are fewer people in the workplace and so businesses that require contact suffered more. That points us in a direction.
“Digital assets cannot be totally ignored for the short and medium term. Tech companies are going to get even more attention. Pharmaceutical companies and those in the medical world, including ancillary services, haven’t done badly, too. Investors can stake a bet on the future relevance of companies but also look at how well they are run in the short term. Corporate governance is key.”
Meanwhile, the first quarter of 2021 ended on a mixed and highly volatile note to start the year on the Nigerian Stock Exchange, coming after the market witnessed a bull-run in 2020 as a result of strong positive sentiments and price appreciation of high cap stocks that supported the rally.
This was propelled by low yield in the fixed income space which pushed funds to equities in search of higher return, and was extended to the first month of 2021, maintaining a three-year change pattern in January.
United Capital Plc says that the sustained reversal in the yield environment has weakened investors’ interest in equities and has led to the active selloffs observed over the past month.
Speaking on market performance, founder of Tradelines DotBiz Investment Ltd, Mr Tunde Jeariogbe said, “The Nigerian equities opened the year 2021 on a bullish ground, moving sharply towards the north; this is despite the news of the second stage of COVID-19, and consistent increase in the nations headline inflation rate. The CBN’s move to rescue the nation’s economy from recession encouraged investment towards the market as returns in other instruments, like fixed income market, remained low and unattractive in the first month of the year. These factors amongst few others helped the market in its very sharp gains.
“Nevertheless, as the news of the economy recovery from recession emerged and rates turned up in the fixed income market, the stock market swiftly resumed an uncontrollable correction, which led to the decline seen in the Q1. This also marked the full year earnings season period.”
Senior broker with Calyxt Securities Ltd, Mr Tunde Oyediran agreed that the stock market fared well in this quarter. According to him, despite the harsh economic environment and security challenges bedeviling many regions of our nation, most of our companies still recorded impressive results, which encouraged and endeared the institutional and individual investors to the market.
On market outlook, the chief operating officer of InvestData Consulting Ltd, Mr Ambrose Omordion said, “We expect the mixed trend to continue as portfolio reshuffling and adjustment ahead of Q1 numbers and economic data in the face of rising dividend and fixed income market yields. Also, the pullbacks offer bargain hunters and income investors another opportunity to reposition in high dividend yields and undervalued stocks, while quarterly numbers to support recovery. This is based on the fact that the rising fixed income yields may not be enough to scare all investors away from the equity space.”
He urged investors to target dividend-paying stocks and fundamentally sound companies with growth prospects in 2021 looking the way of mispriced equities, adding that this is, especially, given the rising oil prices that have so far supported the economy and equity market, despite the seeming improvement in the fixed income yield which had remained at negative real rate of return due to the subsisting high inflation.
Omordion, however, said that the strong and faster recovery may continue, depending on market forces, going forward as propelled by 2020 full numbers and expected 2021 Q1 earnings reports, until the next Monetary Policy Committee meeting in May.
A professor of Capital Market, Nasarawa State University, Uche Uwaleke, told LEADERSHIP Sunday that any significant investment consideration this period should be towards a long term view. He said, this way, appreciable and meaningful returns can be realised.
He said, “The COVID-19 pandemic has negatively affected the global economy and, especially, Nigeria a developing nation. The COVID-19 has been devastating in terms of the impact on our economy, businesses and households and still not abating. We have seen a troubling trend in the country in recent times, with businesses and activities today facing increasing levels of competitive pressure and difficulties, coupled with persistent insecurity and inflationary pressure where high price increases have continued in transportation, food cost, household needs, raw materials, pharmaceutical products, motor cars, vehicle spare parts, equipment, and in prices of services amongst others.
“This has really discouraged investments, because with persistent inflation, businesses and households perform poorly, and expectedly more money is paid for the same goods and services, thereby eroding a large chunk of the disposable income of the populace.’’